Originally published by Lensa Insights.
New research reveals Maryland has the 7th highest cost of living in the US.
The research, undertaken by Lensa, looked at data from World Population Review and United States Census Bureau to determine which state had the highest cost of living in 2022 and the lowest labour costs from the years 2016-2020.
Which states are the best to launch a startup in?
Starting your own business comes with many perks, from taking control of the job search process to following your passions and having independence.
There are a lot of things to consider when starting your own company, but one important decision to make is where to launch your startup.
The business climate for new startups varies drastically across states, and location can impact crucial areas of your business, including tax and labor costs.
We narrowed down the best states to launch your startup in, looking at factors such as the rate of new entrepreneurs, corporate tax rate, and venture capital. Texas, Georgia, and California come in at the top of our list as the surest states for startup success.
Best States to Launch a Startup In
1. Texas | Startup score: 7.09/10
In first place on our list as the best US state to launch a startup business in is Texas, scoring 7.09 out of 10 in the factors we looked at. Texas saw 492,243 new business applications in the last year, beaten only by California and Florida. This demonstrates just how many ambitious entrepreneurs there are in Texas.
Texas also ranks in the top 10 states for corporate tax rate, at just 3.95%, helping small business owners maximize their profits. Texas sits in the top 15 US states for the cost of living, benefiting startup entrepreneurs who are bootstrapping their businesses.
2. Georgia | Startup score: 6.68/10
Georgia ranks second on our list of the best states to launch a startup in.
Georgia had around 326,460 new business applications in 2021, putting it in fourth place for this factor behind Texas, California, and Florida. Despite the lively business environment in Georgia, the state is one of the worst in the US for corporate tax, with a rate of 5.93%. The state makes up for its high corporate tax rate with an incredibly low cost of living, with an index score of 88.8. This puts it in the top five most affordable US states and provides some benefits for startup founders looking to reduce costs.
3. California | Startup score: 6.65/10
California ranked as our third best state for entrepreneurs to start a business in.
In 2021, California had around 518,001 new business applications, beaten only by Florida. This makes California one of the fastest-growing new business climates and an attractive choice for new business owners. However, for startup entrepreneurs in California, the corporate tax rate is 4.92%, and the state is in the top three most expensive based on its cost of living index of 142.2.
Worst States to Launch a Startup In
1. North Dakota | Startup score: 2.88/10
North Dakota ranks as the worst state in the US for new business owners to launch their companies.
North Dakota received one of the lowest numbers of new business applications in the last year (just 7,984), making it one of the worst states for entrepreneurs. Those starting a business in North Dakota will have their income affected by the 5.86% corporate tax rate, which places it in the bottom ten states with the highest tax rates. North Dakota’s cost of living index is 98.2, which is below the US state average.
2. West Virginia | Startup score: 2.96/10
West Virginia ranks as one of the worst states to have a startup business in the US, scoring 2.96 out of 10 across all the factors we analyzed.
West Virginia saw just 13,195 new business applications in 2021, placing it in the bottom five states for this factor. Entrepreneurs in West Virginia are subject to the 5.46% corporate tax, which exceeds the state average of 5.2%. However, they benefit from the low cost of living index, which is around 90.5.
3. Rhode Island | Startup score: 3.11/10
For entrepreneurs starting a new business, Rhode Island is one of the worst states in the US to relocate to, scoring 3.11 out of 10 in our study.
In Rhode Island, there were just 11,351 applications to open new businesses in 2021, indicating a less favorable climate for entrepreneurs. Despite this, the corporate tax rate in the state is below the US average at 4.55%. At the same time, its cost of living index of 117.2 makes it one of the most expensive states.
Which State Has the Most New Business Applications? | Florida: 632,105
Florida has an active and dynamic new business climate, which is appealing to startup entrepreneurs, with 632,105 new business applications in 2021.
Which State Has the Highest Business Survival Rate? | Massachusetts: 9.34%
Those looking to build a successful business for years to come might consider launching a startup in Massachusetts, with a business survival rate of 9.34%.
Which State Has the Highest Rate of New Entrepreneurs? | Florida: 0.61%
Florida’s entrepreneurial scene is one of the best in the country, with a rate of new entrepreneurs of 0.61%.
Which State Has the Lowest Corporate Tax Rate? | Delaware: 2.45%
Corporate tax rates vary widely across the US, and they can crucially impact the profits of a startup. Delaware boasts the lowest corporate tax rate, at 2.45%.
Which State Has the Largest College-Educated Population? | Massachusetts: 44.5%
Massachusetts is renowned worldwide for its higher educational institutions, so it comes as no surprise that it has the biggest college-educated population, with 44.5% of adults aged over 25.
Which State Has the Lowest Labor Costs? | Mississippi: $25,444
Mississippi has the lowest labor costs of all the states, with the average income at $25.444.
Which State Has the Lowest Cost of Living? | Mississippi: 83.3
Alongside Mississippi’s low labor costs, the state also has the lowest cost of living index in all of the states, at 83.3, making it one of the most cost-effective states for startups.
Which State Has the Most Venture Capital? | Massachusetts: $31,792
Massachusetts benefits from the most venture capital of all states, at $31,792 per $1 million of GDP.
Methodology
We wanted to find the best states in the US to launch a startup in, so we ranked each state according to the following factors. We gave each state a normalized score out of 10, before taking an average across all factors and giving each state a “startup score out of 10.”
The number of new business applications per state during 2021 was sourced from the United States Census Bureau.
The business survival rate as the percentage of businesses that opened in the year ending March 2013 which were still trading as of March 2018 was sourced from the Bureau of Labor Statistics.
The rate of new entrepreneurs during 2021 was sourced from the Kauffman Indicators of Entrepreneurship.
The corporate tax rate for 2021 was sourced from TaxFoundation.
The share of the college-educated population as those with a bachelor’s degree or higher as a percent of persons age 25 years+ from 2016-2020 was sourced from the United States Census Bureau.
The labor costs as the average income per capita from the past 12 months (in 2020 dollars), 2016-2020 were sourced from the United States Census Bureau.
The cost of living for 2022 was sourced from World Population Review.
The venture capital disbursed per $1 million of GDP was sourced from the National Center for Science and Engineering Statistics.
